The Residual Theory of Dividend Policy Asserts That

question 55

Multiple Choice

The residual theory of dividend policy asserts that

• A)sufficient dividends are paid to maintain a stable total dividend payment-any residual is invested internally by the firm.
• B)sufficient dividends are paid to maintain a stable dividend payout ratio-any residual is invested internally by the firm.
• C)dividends are paid out of the residual remaining after internal investments by the firm.
• D)dividend payments are adjusted to maintain dividends at a constant percentage of total cash flows.

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Definitions:

Business Quarters

Divisions of the fiscal year into four equal parts, typically three months each, used by businesses to report earnings and assess performance.

Demand-Pull Inflation

An economic condition where prices rise because the demand for goods exceeds supply.

Cost-Push Inflation

Inflation caused by an increase in the cost of production, such as higher raw material costs, which is passed on to consumers in the form of higher prices.

Creditors

Creditors are individuals, businesses, or institutions that lend money or extend credit to others, expecting repayment in the future.